Verrica Pharmaceuticals Inc.'s (NASDAQ:VRCA) Shift From Loss To Profit

We feel now is a pretty good time to analyse Verrica Pharmaceuticals Inc.'s (NASDAQ:VRCA) business as it appears the company may be on the cusp of a considerable accomplishment. Verrica Pharmaceuticals Inc., a clinical-stage dermatology therapeutics company, develops medications for the treatment of skin diseases in the United States. On 31 December 2023, the US$215m market-cap company posted a loss of US$67m for its most recent financial year. As path to profitability is the topic on Verrica Pharmaceuticals' investors mind, we've decided to gauge market sentiment. In this article, we will touch on the expectations for the company's growth and when analysts expect it to become profitable.

See our latest analysis for Verrica Pharmaceuticals

Verrica Pharmaceuticals is bordering on breakeven, according to the 6 American Pharmaceuticals analysts. They anticipate the company to incur a final loss in 2025, before generating positive profits of US$5.7m in 2026. The company is therefore projected to breakeven around 2 years from now. What rate will the company have to grow year-on-year in order to breakeven on this date? Using a line of best fit, we calculated an average annual growth rate of 62%, which is rather optimistic! If this rate turns out to be too aggressive, the company may become profitable much later than analysts predict.

We're not going to go through company-specific developments for Verrica Pharmaceuticals given that this is a high-level summary, though, keep in mind that typically a pharma company has lumpy cash flows which are contingent on the drug and stage of product development the business is in. This means, large upcoming growth rates are not abnormal as the company is beginning to reap the benefits of earlier investments.

One thing we would like to bring into light with Verrica Pharmaceuticals is its debt-to-equity ratio of over 2x. Generally, the rule of thumb is debt shouldn’t exceed 40% of your equity, and the company has considerably exceeded this. A higher level of debt requires more stringent capital management which increases the risk around investing in the loss-making company.

Next Steps:

There are too many aspects of Verrica Pharmaceuticals to cover in one brief article, but the key fundamentals for the company can all be found in one place – Verrica Pharmaceuticals' company page on Simply Wall St. We've also compiled a list of key factors you should further examine:

1. Valuation: What is Verrica Pharmaceuticals worth today? Has the future growth potential already been factored into the price? The intrinsic value infographic in our free research report helps visualize whether Verrica Pharmaceuticals is currently mispriced by the market.
2. Management Team: An experienced management team on the helm increases our confidence in the business – take a look at who sits on Verrica Pharmaceuticals’s board and the CEO’s background.
3. Other High-Performing Stocks: Are there other stocks that provide better prospects with proven track records? Explore our free list of these great stocks here.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.